How Africa’s climate insurance scheme is expanding

Africa’s fledgling insurance scheme covering governments against drought expects to add five countries this year, expanding its client base to nine nations, and plans to offer insurance for tropical cyclones and floods from next May.

In its first year of operation, African Risk Capacity (ARC), an African Union agency, insured Niger, Senegal, Mauritania and Kenya for $129 million in total losses, and paid out $26.3 million after three West African states suffered low rainfall.

Senegal, Niger and Mauritania are using the money to distribute food and transfer cash to more than 1.3 million people, and subsidise animal feed for some 570,000 livestock.

In the second policy year, which began in May, ARC expects Burkina Faso, Malawi, Mali, Gambia and Zimbabwe to join, with coverage set to rise to $192 million, it said.

ARC is targeting total membership of 20 to 30 African countries over the next four years.

Simon Young, CEO of ARC Ltd, the mutual that sells the insurance products to participating countries, said the scheme was gearing up gradually because it requires “a lot of heavy lifting” to develop rigorous government plans that ensure any payouts quickly reach people in need.

“The flaw … is getting countries to buy something they have not thought they needed to buy in the past,” he told the Thomson Reuters Foundation by phone from Washington DC on Wednesday.

Until now African nations have totally relied on donors to provide a rapid humanitarian response to food crises caused by extreme weather events such as drought, he added.

But insurance schemes can offer payouts that are faster than waiting for rich governments to respond to aid appeals, Young said.

This year Senegal, Mauritania and Niger had already received their ARC money by the time the United Nations had launched an appeal in February to fund humanitarian support in the Sahel.

But Senegal and Niger experienced teething problems in getting the insurance payouts through their government spending systems and procuring food aid, delaying delivery to people on the ground.

Efforts would be made to smooth out such bottlenecks, ideally in partnership with experienced institutions such as the World Bank, Young said.

“It is a bit frustrating for us, but we are breaking very new ground,” he added.

G7 boost?

ARC’s key aim is to build the ability of African states to prepare for and respond to climate-related disasters themselves, changing the norm where most relief aid bypasses the government.

Achieving this would have broader value because stronger government systems would benefit the wider humanitarian response, Young noted.

ARC also believes it can help U.N. agencies like the World Food Programme and aid charities by offering them insurance against extreme weather events in African countries.

It is hoping to receive backing from a new initiative announced by Group of Seven (G7) leaders in June, which pledged to insure up to 400 million more people in developing countries against climate risks by 2020.

Richard Wilcox, a leading founder of ARC, said that target could be met “if the G7 translate their commitment into real action”.

“In Africa, the capacities, technology and national demand are in place to reach $1 billion in coverage by 2020,” he said in a statement.

That could double if the G7 initiative encouraged the global aid system to participate in climate risk insurance, he added.

Young noted that the British and German governments had already provided interest-free loans to help set up ARC.

“Most of the African sovereigns are limited in how much they can afford to pay in premiums and how much capacity they have to distribute a payout – as we have learned this year – so anything that can help on either of those sides is where we want to have the G7 focus,” he added.

This article is published in collaboration with Thomson Reuters Foundation. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Megan Rowling covers aid and climate change issues, with a focus on social, economic and environmental justice.

Image: Mejury Tererai walks past a traditional maize granary near Gokwe, Zimbabwe, at a time when southern Africa has suffered one of its worst harvests in years due to a lack of rain. REUTERS/Philimon BulawayoA